La Mia's Casas builds replicas of residences of famous and infamous people. The company is highly automated, and the new accountant-owner has decided to use machine hours as the basis for predicting maintenance costs. The following data are available from the company's most recent eight months of operations: Machine hours Maintenance costs 4,000 $1,470 7,000 1,200 3,500 1,680 6,000 1,100 3,000 1,960 9,000 880 8,000 1,020 5,500 1,200 a. Using the high-low method, determine the cost formula for maintenance costs with machine hours as the basis for estimation. b. What aspect of the estimated equation is bothersome? Provide an explanation for this situation. c. Within the relevant range, can the formula be reliably used to

La Mia's Casas builds replicas of residences of famous and infamous people. The company is highly automated, and the new accountant-owner has decided to use machine hours as the basis for predicting maintenance costs. The following data are available from the company's most recent eight months of operations: Machine hours Maintenance costs 4,000 $1,470 7,000 1,200 3,500 1,680 6,000 1,100 3,000 1,960 9,000 880 8,000 1,020 5,500 1,200 a. Using the high-low method, determine the cost formula for maintenance costs with machine hours as the basis for estimation. b. What aspect of the estimated equation is bothersome? Provide an explanation for this situation. c. Within the relevant range, can the formula be reliably used to

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter2: Building Blocks Of Managerial Accounting

Section: Chapter Questions

Problem 4EA: Hicks Contracting collects and analyzes cost data in order to track the cost of installing decks on...

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Hicks Contracting collects and analyzes cost data in order to track the cost of installing decks on new home construction jobs. The following are some of the costs that they incur. Classify these costs as fixed or variable costs and as product or period costs. Lumber used to construct decks ($12.00 per square foot) Carpenter labor used to construct decks ($10 per hour) Construction supervisor salary ($45,000 per year) Depreciation on tools and equipment ($6,000 per year) Selling and administrative expenses ($35,000 per year) Rent on corporate office space ($34,000 per year) Nails, glue, and other materials required to construct deck (varies per job)
Emery Manufacturing Company produces component parts for the farm equipment industry and has recently undergone a major computer system conversion. Jake Murray, the controller, has established a troubleshooting team to alleviate accounting problems that have occurred since the conversion. Jake has chosen Gus Swanson, assistant controller, to head the team that will include Linda Wheeler, cost accountant; Cindy Madsen, financial analyst; Randy Lewis, general accounting supervisor; and Max Crandall, financial accountant. The team has been meeting weekly for the last month. Gus insists on being part of all the team conversations in order to gather information, to make the final decision on any ideas or actions that the team develops, and to prepare a weekly report for Jake. He has also used this team as a forum to discuss issues and disputes about him and other members of Emerys top management team. At last weeks meeting, Gus told the team that he thought a competitor might purchase the common stock of Emery, because he had overheard Jake talking about this on the telephone. As a result, most of Emerys employees now informally discuss the sale of Emerys common stock and how it will affect their jobs. Required: Is Gus Swansons discussion with the team about the prospective sale of Emery unethical? Discuss, citing specific standards from the code of ethical conduct to support your position. (CMA adapted)
Dahl Corporation has just built a machine to produce car doors. Dahl had to build this machine because it couldn’t purchase one that met its specifications. The following are the costs related to the machine’s construction and the first month of operations: • Construction materials, $20,000 • Labor, $9,000 (construction, $3,000; testing, $1,000; operations, $5,000) • Engineering fees, $5,000 • Utilities, $4,000 (construction, $1,000; testing, $1,000; operations, $2,000) What is the initial value of the machine? a. $28,000 b. $29,000 c. $31,000 d. $38,000
Rico Company produces custom-made machine parts. Rico recently has implemented an activity-based management (ABM) system with the objective of reducing costs. Rico has begun analyzing each activity to determine ways to increase its efficiency. Setting up equipment was among the first group of activities to be carefully studied. The study revealed that setup hours was a good driver for the activity. During the last year, the company incurred fixed setup costs of $860,200 (salaries of 17 employees). The fixed costs provide a capacity of 39,100 hours (2,300 per employee at practical capacity). The setup activity was viewed as necessary, and the value- added standard was set at 2,300 hours. Actual setup hours used in the most recent period were 37,110. Required: 1. Calculate the volume and unused capacity variances for the setup activity. Enter all amounts as positive values. Volume Variance 22 Unused Capacity Variance $ Show Me How 2. Prepare a report that presents value-added, non varue…
The following data is from Star Production Systems: Activity Activity Cost Correcting invoice errors $10,000 Disposing of poor-quality incoming materials. 15,000 Disposing of scrap 28,000 Final inspections 25,000 Responding to customer complaints 15,000 Inspecting incoming materials 17,500 Preventative machine maintenance 15,000 Warranty work 25,000 As a recent business graduate (with a special love for accounting), Star Production has asked you to analyze their activity costs and make recommendations for improvement. Using the data above, create a Cost of Quality Report and suggest activity areas that should be investigated further by the company.…
The Rainier Company provides landscaping services to corporations and businesses. 11-2 All its landscaping work requires Rainier to use landscaping equipment. Its land scaping equipment has the capacity to do 10,000 hours of landscaping work. It cur rently anticipates getting orders that would utilize 9,000 hours of equipment time from existing customers. Rainier charges $80 per hour for landscaping work. Cost information for the current expected activity level is as follows:
Moss Ltd. has the following activities: creating bills of materials (BOM), studying manufacturing capabilities, improving manufacturing processes, training employees, and designing tooling. The general ledger accounts reveal the following expenditures for manufacturing engineering: Salaries £ 75,000Equipment 40,000Supplies __10,000 Total £125,000 The equipment is used for two activities: improving processes and designing tooling. Thirty-five percent of the equipment's time is used for improving processes and 65 percent is used for designing tools. The salaries are for two engineers. One is paid £50,000, while the other earns £25,000. The £50,000 engineer spends 40 percent of his time training employees in new processes and 60 percent of his time on improving processes. The remaining engineer spends equal time on all activities. Supplies are consumed in the following proportions: Creating BOMs 25%Studying capabilities 10%Improving processes 20%Training employees 25%Designing tooling…
The Hy-Tech Services Corporation employs researchers based in countries around the world. Employee time is the basis upon which charges to many customers are made. The geographically dispersed nature of its operations makes it extremely difficult for the payroll staff to collect time records, so the management team authorizes the design of an in-house, web-based timekeeping system. The project team incurs the following costs: Concept design - 2,500; Evaluation of design alternatives - 3,700; Determination of required technology - 8,100; Final selection of alternatives - 1,400; Software design - 28,000; Software coding - 42,000; Quality assurance testing - 30,000; Data conversion costs - 3,900; Training - 14,000; Overhead allocation - 6,900; General and administrative costs - 11,200; Ongoing maintenance costs - 6,000. Required: Compute the amount of intangible asset recognized from the given transactions
Prior to installing a JIT system, Clarendon Company used machine hours to assign maintenance costs to its three products of 6-inch, 8-inch, and 11-inch insulation. The maintenance costs totaled $400,000 per year. The machine hours used by each product and the quantity produced of each product are as follows: Machine Hours Quantity Produced 6-inch 12,000 31,250 rolls 8-inch 20,000 25,000 rolls 11-inch 18,000 12,000 rolls After installing JIT, three manufacturing cells were created and the cell workers were trained to perform maintenance. Maintenance costs for the three cells still totaled $400,000; however, these costs are now traceable to each cell. Cell, 6-inch $100,000 Cell, 8-inch 120,000 Cell, 11-inch 180,000 After installing JIT, the maintenance cost per roll of 6-inch insulation would be
Dagley’s Donuts is a business that sells fax machines. In order to help make decisions for the business, Mr. Dagley has his staff accountant create a Schedule of Raw Materials. If the Raw Materials transferred to ‘work in progress’ is $650,000, the Ending Raw Materials is $122,000, and the Net Purchase of Raw Materials is $756,000, what were the Beginning Raw Materials for the year?
Jobs, Inc. has recently started the manufacture of Tri-Robo, a three-wheeled robot that can scan a home for fires and gas leaks and then transmit this information to a smartphone. The cost structure to manufacture 20,000 Tri-Robos is as follows. Direct materials ($50 per robot) Direct labor ($40 per robot) Variable overhead ($6 per robot) Allocated fixed overhead ($30 per robot) Total Cost (a1) $1,000,000 800,000 120,000 600,000 $2,520,000 Jobs is approached by Tienh Inc., which offers to make Tri-Robo for $115 per unit or $2,300,000. Following are independent assumptions. Assume that $405,000 of the fixed overhead cost can be avoided. (Enter negative amounts using either a negative sign MA W P s X f E
The president of Mission Inc. has been concerned about the growth in costs over the last several years. The president asked the controller to perform an activity analysis to gain a better insight into these costs. The activity analysis revealed the following: Activities Activity Cost Correcting invoice errors $8,500 Disposing of income materials with poor quality 16,000 Disposing of scrap 28,500 Expediting late production 21,500 Final inspection 19,000 Inspecting incoming materials 5,000 Inspecting work in process 25,000 Preventive machine maintenance 15,000 Producing product 95,500 Responding to customer quality complaints 15,000 Total 249,000 The production process is complicated by quality problems, requiring the production manager to expedite production and dispose of scrap. Prepare a Pareto chart of the company activities. Classify the activities into prevention, appraisal, internal failure,…